Description
This is presentation about what is organizational buying and what are the different factors that influence buying decision.
Organizational Buying
? Organizational buying
? The business market versus the consumer market
? Business market
? Fewer buyers ? Larger buyers ? Close supplier-customer relationship ? Geographically concentrated buyers
Copyright © 2003 Prentice-Hall, Inc.
What is Organizational Buying?
? Derived demand ? Inelastic demand ? Fluctuating demand ? Professional purchasing
Copyright © 2003 Prentice-Hall, Inc.
Derived Demand
? Demand for industrial products is derived from ultimate consumer demand. Customers in the Business market , such as commercial firms, Govt., buy goods and services in order to produce other goods and services for their customers. ? As this example illustrates demand for an industrial product is derived from the buying organizations’ customer (Car buyers) , not from the buying itself.
Copyright © 2003 Prentice-Hall, Inc.
Derived Demand Conti…
? Demand patterns and changing buying preferences in the final consumer markets need to be monitored. ? Aluminum producers use advertisement to point up the convenience and recycling opportunities that aluminum containers offer to the consumer because the ultimate consumer prefers Al cans rather than plastic bottle.
Copyright © 2003 Prentice-Hall, Inc.
Demand Elasticity
? Demand is elastic if a given percentage change in price brings about an even larger percentage change in in the quantity demanded. ? Inelasticity results when demand is insensitive to price.( Percentage in the demand is less than the percentage change in price). Cell Phones buyers are normally insensitive to price, hence manufacturer of these product is insensitive to the price of electronic components.
Copyright © 2003 Prentice-Hall, Inc.
Price sensitivity
? If a customer is price sensitive when purchasing soup and other canned grocery products, manufacturers of soup will be price sensitive when purchasing metal cans. Thus the derived demand indicates that the demand for metal cans is price elastic.
Copyright © 2003 Prentice-Hall, Inc.
Environmental Forces influence Demand
? In monitoring and forecasting demand the business marketer must be alert to factors in the competitive, economic, political and legal environment that directly or indirectly influence demand. ? A mild recession cuts deeply into some segments of the business market while leaving other segments unscathed. ? Rising interest rates ? Increase in the price of petroleum products ? Ecological concerns which make few products obsolete , creating challenging replacement opportunities. ? Constant surveillance of these and other environmental forces is fundamental to accurate demand analysis in the business market.
Copyright © 2003 Prentice-Hall, Inc.
Monitoring International Competition
? Number of industries today do not have the domestic share alone but the worldwide market share. ? Organizations now have to choose markets whose needs they can satisfy and whose competitors they can handle. ? A global orientation is especially important to B2B marketers competing in rapidly changing industries as telecom , electronics or automobile and in basic commodity industries such as steel etc.
Copyright © 2003 Prentice-Hall, Inc.
What are some of the benefits to an organization that can be derived from a single source solution, or a systems buying arrangement with a prime contractor? What are some of the potential pitfalls? What can the company do to protect itself from these hazards?
Copyright © 2003 Prentice-Hall, Inc.
Forces Influencing Organizational Buying behaviour
Environmental Forces Organizational Forces Group Forces Individual Forces
Organization Buying behaviour
Copyright © 2003 Prentice-Hall, Inc.
Figure 8-1: Major Influences on Industrial Buying Behavior
Copyright © 2003 Prentice-Hall, Inc.
Economic Influences
? The condition of an economy is reflected in Economic growth, Employment, Price stability. Income and the availability of resources and credit.
Copyright © 2003 Prentice-Hall, Inc.
Political and legal
? The political environment includes tariffs and trade agreements with other countries , government funding of selected programme and Govt. attitudes towards business and social service activities. ? The legal includes forces at the central and state levels that specify the buyer seller relationships.
Copyright © 2003 Prentice-Hall, Inc.
Cultural Influences
? Culture as reflected in values, customs , habits, norms, traditions, and so on will influence the structure and functioning of the organization feel and act toward one another and various aspect of the environment.
Copyright © 2003 Prentice-Hall, Inc.
Negotiating with Japanese
? Negotiating with Japanese executives is a lengthy exercise , not only because of cultural gaps but also as they will not take a position until they have achieved an internal consensus among a great many organizational members. ? Japanese firms want long-term , exclusive business relations based on “KAN” a word that can be translated as emotional attunement.
Copyright © 2003 Prentice-Hall, Inc.
Physical Influences
? Factors such as Climate and geographical location of the organization.. ? The availability of labor, raw material, transportation services. ? Near by supplier often have an advantage in the vendor selection process .
Copyright © 2003 Prentice-Hall, Inc.
Technological Influences
? Rapidly changing tech can restructure an industry and dramatically alter organizational buying plans. ? The rate of tech. change in an industry influences the composition of the decision making unit in the buying organization. ? Marketers must actively monitor signs of Tech. change and be prepared to adapt marketing strategy to deal with .
Copyright © 2003 Prentice-Hall, Inc.
Environmental Uncertanity
? Changes in the company leadership or in economic conditions. ? More people taking part in buying. ? Who becomes the most important person then????? ? It is important to monitor the trends that imoact the buying process.
Copyright © 2003 Prentice-Hall, Inc.
Organizational Forces
? The behavioral theory of the firm describes how organizations actually operate. Four concepts ? Quasi –Resolution of conflict ? Uncertainty avoidance ? Problematic search ? Organizational learning
Copyright © 2003 Prentice-Hall, Inc.
Quasi –resolution of conflict
? Purchasing agents may be concerned with economy, engineers with performers, users with delivery. The goals reflect the decision makers specialized interests and responsibilities within the organization. ? Cyert and James March describe three mechanisms for reducing goal conflict. ? Local rationality
Complex into small problems) ? Acceptable level decision rules : Decision may not be optimal but -Just acceptable. ? Sequential Attention to goals: Approach the problems one at a time.
Copyright © 2003 Prentice-Hall, Inc.
Uncertainty avoidance
? Organizational members concentrate on short-range problems solving and tend to delay long range problems solving and planning. ? To avoid uncertainty organizational buyers may favour known suppliers , avoid the risk of innovation and split orders between two or more vendors.
Copyright © 2003 Prentice-Hall, Inc.
Problematic search
? The search for info is stimulated by the definition of a problem and directed towards solving that problem. The search process follows the simplest path , moving from the familiar to the less familiar until an acceptable alternative is found. ? Organizational buyers do not consider new vendors unless their requirements change or problem emerge with existing vendors.
Copyright © 2003 Prentice-Hall, Inc.
Organizational learning
? The concept of organizational learning provides additional insights into the behaviour of organizations. ? Adaptation of goals: Goals are shifted up or down in response to success or failure in previous periods. ? Adaptation in attention rules: Learn to pay attention to some parts of the environment to some comparable organizations. ? Adaptation in search rules: future search efforts generally begin in an area where a solution was found in past.
Copyright © 2003 Prentice-Hall, Inc.
Organizational Climate
? In some organization one may sense spontaneity , happiness creativity – a place on the go. ? Understanding the climate of a potential buying organization by the marketer can help him tailor a selling strategy. ? Achievement Motivation: The degree to which the organization attempts to excel. ? Rules Orientation: The degree to which rules are revered and followed ? Readiness to innovate: Encourage innovative activity ? Industriousness: Hard work expected of organizational members.
Copyright © 2003 Prentice-Hall, Inc.
Centralized Procurement
? ? ? ?
Commonality of requirements: Cost saving potential Structure of supply industry Involvement of engineering in Purchasing
Copyright © 2003 Prentice-Hall, Inc.
Group Forces
? Which member takes part in the Buying Process? ? What is each member’s relative influence? ? What criteria’s are important to each member when evaluating prospective suppliers?
Copyright © 2003 Prentice-Hall, Inc.
Buying Center
? Composition ? Tracing communication Flaws ? Understanding the power culture
Copyright © 2003 Prentice-Hall, Inc.
What do Purchasing Managers like and dislike in a sales person
? ? ? ? ? ? ? ? ? Likes Having a professional approach. Getting to the point quickly Giving well organized sales presentations Assuring customer satisfaction after the sale Dislikes: Backdoor selling :Bypassing Over aggressive Wasting too much time.
Copyright © 2003 Prentice-Hall, Inc.
Major elements in organizational buying process Evoked set of alternatives Environment Constraints Organizational Requirements Individual Responsibilities Comprising the buying center Sources of Info Evaluation Criteria Interaction Structure
Feasible set of alternatives Formation of Organizational Preferences Formation of individual preferences Organizational Choice
Copyright © 2003 Prentice-Hall, Inc.
Copyright © 2003 Prentice-Hall, Inc.
Major Influences on Buying Decisions
? Organizational Factors
? ? ? ? Purchasing-Department Upgrading Cross-Functional Roles Centralized Purchasing Decentralized Purchasing of Small-Ticket Items ? Internet Purchasing
Copyright © 2003 Prentice-Hall, Inc.
Major Influences on Buying Decisions
? Other Organizational Factors
? Long-Term Contracts
? Vendor-managed inventory ? Continuous replenishment programs
? Purchasing-Performance Evaluation and Buyers’ Professional Development ? Improved Supply Chain Management ? Lean Production
? Just-in-time
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Incentive to purchase
? Three Company Purchasing Orientations
? Buying Orientation
? Commoditization ? Multisourcing
? Procurement Orientation
? Materials requirement planning (MRP)
? Supply Chain Management Orientation
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Types of Purchasing Processes
? ? ? ? Routine products Leverage products Strategic products Bottleneck products
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Stages in the Buying Process
? Problem Recognition ? General Need Description and Product Specification
? Product value analysis
? Supplier Search
? ? ? ? Vertical hubs Functional hubs Direct external links to major suppliers Buying alliances
? Company buying sites ? Request for proposals (RFPs)
Copyright © 2003 Prentice-Hall, Inc.
Table 8.1: Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in Relation to Major Buying Situations (Buyclasses)
Buyclasses New Task 1. Problem recognition 2. General need description 3. Product specification Buyphases 4. Supplier search Yes Yes Yes Yes Modified Rebuy Maybe Maybe Yes Maybe Straight Rebuy No No Yes No
5. Proposal solicitation
6. Supplier selection 7. Order-routine specification 8. Performance review
Yes
Yes Yes Yes
Maybe
Maybe Maybe Yes
No
No No Yes
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? General Need Description and Product Specification
? Product value analysis
? Supplier Search
? Vertical hubs ? Functional hubs ? Direct extranet links to major suppliers ? Buying alliances
? Company buying sites ? Request for proposals (RFPs)
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Proposal Solicitation ? Supplier Selection
Copyright © 2003 Prentice-Hall, Inc.
Table 8-2: An Example of Vendor Analysis
Attributes Importance Weights Price Supplier reputation Product reliability Service reliability .30 .20 .30 .10 x x x Poor (1) Rating Scale Fair (2) Good (3) Excellent (4) x
Supplier Flexibility
.10
x
Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Customer value assessment ? Routine-order products ? Procedural-problem products ? Political-problem products
? Order-Routine Specification
? Blanket contract ? Stockless purchase plans
? Performance Review
? Buyflow map
Copyright © 2003 Prentice-Hall, Inc.
Figure 8-2: Major Influences on Industrial Buying Behavior
Copyright © 2003 Prentice-Hall, Inc.
Institutional and Government Markets
? Institutional market
Copyright © 2003 Prentice-Hall, Inc.
doc_510400933.pptx
This is presentation about what is organizational buying and what are the different factors that influence buying decision.
Organizational Buying
? Organizational buying
? The business market versus the consumer market
? Business market
? Fewer buyers ? Larger buyers ? Close supplier-customer relationship ? Geographically concentrated buyers
Copyright © 2003 Prentice-Hall, Inc.
What is Organizational Buying?
? Derived demand ? Inelastic demand ? Fluctuating demand ? Professional purchasing
Copyright © 2003 Prentice-Hall, Inc.
Derived Demand
? Demand for industrial products is derived from ultimate consumer demand. Customers in the Business market , such as commercial firms, Govt., buy goods and services in order to produce other goods and services for their customers. ? As this example illustrates demand for an industrial product is derived from the buying organizations’ customer (Car buyers) , not from the buying itself.
Copyright © 2003 Prentice-Hall, Inc.
Derived Demand Conti…
? Demand patterns and changing buying preferences in the final consumer markets need to be monitored. ? Aluminum producers use advertisement to point up the convenience and recycling opportunities that aluminum containers offer to the consumer because the ultimate consumer prefers Al cans rather than plastic bottle.
Copyright © 2003 Prentice-Hall, Inc.
Demand Elasticity
? Demand is elastic if a given percentage change in price brings about an even larger percentage change in in the quantity demanded. ? Inelasticity results when demand is insensitive to price.( Percentage in the demand is less than the percentage change in price). Cell Phones buyers are normally insensitive to price, hence manufacturer of these product is insensitive to the price of electronic components.
Copyright © 2003 Prentice-Hall, Inc.
Price sensitivity
? If a customer is price sensitive when purchasing soup and other canned grocery products, manufacturers of soup will be price sensitive when purchasing metal cans. Thus the derived demand indicates that the demand for metal cans is price elastic.
Copyright © 2003 Prentice-Hall, Inc.
Environmental Forces influence Demand
? In monitoring and forecasting demand the business marketer must be alert to factors in the competitive, economic, political and legal environment that directly or indirectly influence demand. ? A mild recession cuts deeply into some segments of the business market while leaving other segments unscathed. ? Rising interest rates ? Increase in the price of petroleum products ? Ecological concerns which make few products obsolete , creating challenging replacement opportunities. ? Constant surveillance of these and other environmental forces is fundamental to accurate demand analysis in the business market.
Copyright © 2003 Prentice-Hall, Inc.
Monitoring International Competition
? Number of industries today do not have the domestic share alone but the worldwide market share. ? Organizations now have to choose markets whose needs they can satisfy and whose competitors they can handle. ? A global orientation is especially important to B2B marketers competing in rapidly changing industries as telecom , electronics or automobile and in basic commodity industries such as steel etc.
Copyright © 2003 Prentice-Hall, Inc.
What are some of the benefits to an organization that can be derived from a single source solution, or a systems buying arrangement with a prime contractor? What are some of the potential pitfalls? What can the company do to protect itself from these hazards?
Copyright © 2003 Prentice-Hall, Inc.
Forces Influencing Organizational Buying behaviour
Environmental Forces Organizational Forces Group Forces Individual Forces
Organization Buying behaviour
Copyright © 2003 Prentice-Hall, Inc.
Figure 8-1: Major Influences on Industrial Buying Behavior
Copyright © 2003 Prentice-Hall, Inc.
Economic Influences
? The condition of an economy is reflected in Economic growth, Employment, Price stability. Income and the availability of resources and credit.
Copyright © 2003 Prentice-Hall, Inc.
Political and legal
? The political environment includes tariffs and trade agreements with other countries , government funding of selected programme and Govt. attitudes towards business and social service activities. ? The legal includes forces at the central and state levels that specify the buyer seller relationships.
Copyright © 2003 Prentice-Hall, Inc.
Cultural Influences
? Culture as reflected in values, customs , habits, norms, traditions, and so on will influence the structure and functioning of the organization feel and act toward one another and various aspect of the environment.
Copyright © 2003 Prentice-Hall, Inc.
Negotiating with Japanese
? Negotiating with Japanese executives is a lengthy exercise , not only because of cultural gaps but also as they will not take a position until they have achieved an internal consensus among a great many organizational members. ? Japanese firms want long-term , exclusive business relations based on “KAN” a word that can be translated as emotional attunement.
Copyright © 2003 Prentice-Hall, Inc.
Physical Influences
? Factors such as Climate and geographical location of the organization.. ? The availability of labor, raw material, transportation services. ? Near by supplier often have an advantage in the vendor selection process .
Copyright © 2003 Prentice-Hall, Inc.
Technological Influences
? Rapidly changing tech can restructure an industry and dramatically alter organizational buying plans. ? The rate of tech. change in an industry influences the composition of the decision making unit in the buying organization. ? Marketers must actively monitor signs of Tech. change and be prepared to adapt marketing strategy to deal with .
Copyright © 2003 Prentice-Hall, Inc.
Environmental Uncertanity
? Changes in the company leadership or in economic conditions. ? More people taking part in buying. ? Who becomes the most important person then????? ? It is important to monitor the trends that imoact the buying process.
Copyright © 2003 Prentice-Hall, Inc.
Organizational Forces
? The behavioral theory of the firm describes how organizations actually operate. Four concepts ? Quasi –Resolution of conflict ? Uncertainty avoidance ? Problematic search ? Organizational learning
Copyright © 2003 Prentice-Hall, Inc.
Quasi –resolution of conflict
? Purchasing agents may be concerned with economy, engineers with performers, users with delivery. The goals reflect the decision makers specialized interests and responsibilities within the organization. ? Cyert and James March describe three mechanisms for reducing goal conflict. ? Local rationality
Complex into small problems) ? Acceptable level decision rules : Decision may not be optimal but -Just acceptable. ? Sequential Attention to goals: Approach the problems one at a time.Copyright © 2003 Prentice-Hall, Inc.
Uncertainty avoidance
? Organizational members concentrate on short-range problems solving and tend to delay long range problems solving and planning. ? To avoid uncertainty organizational buyers may favour known suppliers , avoid the risk of innovation and split orders between two or more vendors.
Copyright © 2003 Prentice-Hall, Inc.
Problematic search
? The search for info is stimulated by the definition of a problem and directed towards solving that problem. The search process follows the simplest path , moving from the familiar to the less familiar until an acceptable alternative is found. ? Organizational buyers do not consider new vendors unless their requirements change or problem emerge with existing vendors.
Copyright © 2003 Prentice-Hall, Inc.
Organizational learning
? The concept of organizational learning provides additional insights into the behaviour of organizations. ? Adaptation of goals: Goals are shifted up or down in response to success or failure in previous periods. ? Adaptation in attention rules: Learn to pay attention to some parts of the environment to some comparable organizations. ? Adaptation in search rules: future search efforts generally begin in an area where a solution was found in past.
Copyright © 2003 Prentice-Hall, Inc.
Organizational Climate
? In some organization one may sense spontaneity , happiness creativity – a place on the go. ? Understanding the climate of a potential buying organization by the marketer can help him tailor a selling strategy. ? Achievement Motivation: The degree to which the organization attempts to excel. ? Rules Orientation: The degree to which rules are revered and followed ? Readiness to innovate: Encourage innovative activity ? Industriousness: Hard work expected of organizational members.
Copyright © 2003 Prentice-Hall, Inc.
Centralized Procurement
? ? ? ?
Commonality of requirements: Cost saving potential Structure of supply industry Involvement of engineering in Purchasing
Copyright © 2003 Prentice-Hall, Inc.
Group Forces
? Which member takes part in the Buying Process? ? What is each member’s relative influence? ? What criteria’s are important to each member when evaluating prospective suppliers?
Copyright © 2003 Prentice-Hall, Inc.
Buying Center
? Composition ? Tracing communication Flaws ? Understanding the power culture
Copyright © 2003 Prentice-Hall, Inc.
What do Purchasing Managers like and dislike in a sales person
? ? ? ? ? ? ? ? ? Likes Having a professional approach. Getting to the point quickly Giving well organized sales presentations Assuring customer satisfaction after the sale Dislikes: Backdoor selling :Bypassing Over aggressive Wasting too much time.
Copyright © 2003 Prentice-Hall, Inc.
Major elements in organizational buying process Evoked set of alternatives Environment Constraints Organizational Requirements Individual Responsibilities Comprising the buying center Sources of Info Evaluation Criteria Interaction Structure
Feasible set of alternatives Formation of Organizational Preferences Formation of individual preferences Organizational Choice
Copyright © 2003 Prentice-Hall, Inc.
Copyright © 2003 Prentice-Hall, Inc.
Major Influences on Buying Decisions
? Organizational Factors
? ? ? ? Purchasing-Department Upgrading Cross-Functional Roles Centralized Purchasing Decentralized Purchasing of Small-Ticket Items ? Internet Purchasing
Copyright © 2003 Prentice-Hall, Inc.
Major Influences on Buying Decisions
? Other Organizational Factors
? Long-Term Contracts
? Vendor-managed inventory ? Continuous replenishment programs
? Purchasing-Performance Evaluation and Buyers’ Professional Development ? Improved Supply Chain Management ? Lean Production
? Just-in-time
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Incentive to purchase
? Three Company Purchasing Orientations
? Buying Orientation
? Commoditization ? Multisourcing
? Procurement Orientation
? Materials requirement planning (MRP)
? Supply Chain Management Orientation
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Types of Purchasing Processes
? ? ? ? Routine products Leverage products Strategic products Bottleneck products
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Stages in the Buying Process
? Problem Recognition ? General Need Description and Product Specification
? Product value analysis
? Supplier Search
? ? ? ? Vertical hubs Functional hubs Direct external links to major suppliers Buying alliances
? Company buying sites ? Request for proposals (RFPs)
Copyright © 2003 Prentice-Hall, Inc.
Table 8.1: Buygrid Framework: Major Stages (Buyphases) of the Industrial Buying Process in Relation to Major Buying Situations (Buyclasses)
Buyclasses New Task 1. Problem recognition 2. General need description 3. Product specification Buyphases 4. Supplier search Yes Yes Yes Yes Modified Rebuy Maybe Maybe Yes Maybe Straight Rebuy No No Yes No
5. Proposal solicitation
6. Supplier selection 7. Order-routine specification 8. Performance review
Yes
Yes Yes Yes
Maybe
Maybe Maybe Yes
No
No No Yes
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? General Need Description and Product Specification
? Product value analysis
? Supplier Search
? Vertical hubs ? Functional hubs ? Direct extranet links to major suppliers ? Buying alliances
? Company buying sites ? Request for proposals (RFPs)
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Proposal Solicitation ? Supplier Selection
Copyright © 2003 Prentice-Hall, Inc.
Table 8-2: An Example of Vendor Analysis
Attributes Importance Weights Price Supplier reputation Product reliability Service reliability .30 .20 .30 .10 x x x Poor (1) Rating Scale Fair (2) Good (3) Excellent (4) x
Supplier Flexibility
.10
x
Total score: .30(4) + .20(3) + .30(4) + .10(2) + .10(3) = 3.5
Copyright © 2003 Prentice-Hall, Inc.
The Purchasing/ Procurement Process
? Customer value assessment ? Routine-order products ? Procedural-problem products ? Political-problem products
? Order-Routine Specification
? Blanket contract ? Stockless purchase plans
? Performance Review
? Buyflow map
Copyright © 2003 Prentice-Hall, Inc.
Figure 8-2: Major Influences on Industrial Buying Behavior
Copyright © 2003 Prentice-Hall, Inc.
Institutional and Government Markets
? Institutional market
Copyright © 2003 Prentice-Hall, Inc.
doc_510400933.pptx